HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Energy Engineering / Equity Bottom-Up

<ul>
<li>We believe strong orders and backlog, increase in installed capacity and development of new business initiatives are the key drivers for brighter outlook of <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a>. </li>
<li>Its new orders grew 51% YoY in FY21, with its backlog is enough to cover the revenue more than the next three years mean solid earnings security and visibility.</li>
<li>Development of hydrogen energy and pumped storage businesses may take longer to contribute, but they also represent significant upside when enter into commercial launch. </li>
</ul>


We believe strong orders and backlog, increase in installed capacity and development of new business initiatives are the key drivers for brighter outlook of China Energy Engineering (3996 HK). 
Its new orders grew 51% YoY in FY21, with its backlog is enough to cover the revenue more than the next three years mean solid earnings security and visibility.
Development of hydrogen energy and pumped storage businesses may take longer to contribute, but they also represent significant upside when enter into commercial launch. 


Energy China (3996 HK): Multiple Drivers for Bright Prospects

Thematic (Sector/Industry)

<ul>
<li>Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.</li>
<li>The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. </li>
<li>Key beneficiaries include <a href="https://www.smartkarma.com/entities/xinjiang-goldwind-science-technology-h" target="_blank" data-smartkarma-citation="entities:10112:1" rel="noopener">Xinjiang Goldwind (2208 HK)</a>, <a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric (1072 HK)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power (916 HK)</a>, <a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">Energy China (3996 HK)</a>, <a href="https://www.smartkarma.com/entities/power-construction-corporation-of-china-limited" target="_blank" data-smartkarma-citation="entities:24220:1" rel="noopener">Power China (601669 CH)</a> and the gas utilities.</li>
</ul>


Russia-Ukraine war has raised commodity prices which are negative towards commodity users in short term. However, we see silver linings for Chinese utilities and energy companies in the longer term.
The conflict is expected to accelerate the progress of renewable projects currently under development, lead to a faster diversification away from fossils and increase gas supply from Russia to China. 
Key beneficiaries include Xinjiang Goldwind (2208 HK), Dongfang Electric (1072 HK), China Longyuan Power (916 HK), Energy China (3996 HK), Power China (601669 CH) and the gas utilities.


Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-energy-engineering-group" target="_blank" data-smartkarma-citation="entities:21017:1" rel="noopener">China Energy Engineering (3996 HK)</a> and <a href="https://www.smartkarma.com/entities/power-construction-corporation-of-china-limited" target="_blank" data-smartkarma-citation="entities:24220:1" rel="noopener">Power Construction Corporation Of China (601669 CH)</a> are the two giants in power construction industry in China; but there are significant differences between them.</li>
<li>Power China has better business and generation mix while Energy China won in terms of margin and profitability, leverage and financial position, new order momentum and hydrogen energy expansion. </li>
<li>We like Energy China "H" for cheap valuation, secured earnings and deep discount to Energy China "A". For just the A-shares, we prefer Power China "A" to Energy China "A".</li>
</ul>



China Energy Engineering (3996 HK) and Power Construction Corporation Of China (601669 CH) are the two giants in power construction industry in China; but there are significant differences between them.
Power China has better business and generation mix while Energy China won in terms of margin and profitability, leverage and financial position, new order momentum and hydrogen energy expansion. 
We like Energy China "H" for cheap valuation, secured earnings and deep discount to Energy China "A". For just the A-shares, we prefer Power China "A" to Energy China "A".


Compare and Contrast: Energy China 中国能建 (3996 HK/601868 CH) And Power China 中国电建 (601669 CH)

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

<ul>
<li>Over the past 2 years, Industrials exposure has almost doubled among China A-Share active investors.  Today's weight of 18.7% and overweight of 1.69% are near peak levels.</li>
<li>The most widely held stocks in the sector are CATL (A), Luxshare Precision Industry (002475 CH), Shenzhen Inovance Technology Co. (300124 CH) and EVE Energy (300014 CH)</li>
<li>Weight increases in the Industrials sector far outweighed decreases over the last half of 2021. Sungrow Power Supply (300274 CH) and NARI Technology Co (600406 CH) were among the beneficiaries.</li>
</ul>


Over the past 2 years, Industrials exposure has almost doubled among China A-Share active investors.  Today's weight of 18.7% and overweight of 1.69% are near peak levels.
The most widely held stocks in the sector are CATL (A), Luxshare Precision Industry (002475 CH), Shenzhen Inovance Technology Co. (300124 CH) and EVE Energy (300014 CH)
Weight increases in the Industrials sector far outweighed decreases over the last half of 2021. Sungrow Power Supply (300274 CH) and NARI Technology Co (600406 CH) were among the beneficiaries.


<p><a href="https://www.smartkarma.com/entities/dongfang-electric-corporation-limited" target="_blank" data-smartkarma-citation="entities:1251:1" rel="noopener">Dongfang Electric Corporation (1072 HK)</a> (DEC) has been rallying on the back of its hydrogen energy angle and the pumped storage story. Given the company's experience and leadership in hydro generating equipment, we think it is well positioned to capture the gigantic market opportunity from the government's push to increase pumped storage capacity in the country by potentially a CAGR of 16% between 2020 and 2035. </p><p>DEC's edges are its expertise and technical competence - it has completed complicated projects like the world's largest pumped storage (Fengning, Hebei), highest operating water heads in China (Changlongshan, Zhejiang) and largest single unit size of generation (Xianju, Zhejiang). Currently, it has pipeline in Fujian, Xinjiang, Chongqing and Henan among others. Despite the recent spike in share price, valuations are still not too demanding at 12.7x PER for FY21 and 11.4x for FY22. We even see likeliness for earnings upgrade after 1H21 result announcement set for 27-Aug.</p>

Dongfang Electric Corporation (1072 HK) (DEC) has been rallying on the back of its hydrogen energy angle and the pumped storage story. Given the company's experience and leadership in hydro generating equipment, we think it is well positioned to capture the gigantic market opportunity from the government's push to increase pumped storage capacity in the country by potentially a CAGR of 16% between 2020 and 2035. DEC's edges are its expertise and technical competence - it has completed complicated projects like the world's largest pumped storage (Fengning, Hebei), highest operating water heads in China (Changlongshan, Zhejiang) and largest single unit size of generation (Xianju, Zhejiang). Currently, it has pipeline in Fujian, Xinjiang, Chongqing and Henan among others. Despite the recent spike in share price, valuations are still not too demanding at 12.7x PER for FY21 and 11.4x for FY22. We even see likeliness for earnings upgrade after 1H21 result announcement set for 27-Aug.

Dongfang Electric (1072 HK): Pumped Additionally by Pumped Storage Story

China

Power Construction Corporation of China, Ltd provides electric utility line construction services. The Company develops and constructs hydropower engineering, water works engineering, thermal power engineering, new energy engineering, and other projects. Power Construction China also operates property development.

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Power Construction of Chi (601669 CH)

Energy China (3996 HK): Multiple Drivers for Bright Prospects

Strong orders and backlog, increase in installed capacity and new business initiatives are key drivers for brighter outlook of Energy China. Its...

Osbert Tang, CFA

Russia-Ukraine War: Longer Term Implications for China Utilities and Energy

We should not overlook the potential long term impact of the Russia-Ukraine war on the Chinese utilities and energy companies as we find some...

Osbert Tang, CFA

Compare and Contrast: Energy China 中国能建 (3996 HK/601868 CH) And Power China 中国电建 (601669 CH)

We like Energy China "H" for cheap valuation, secured earnings and deep discount to "A". For just the A-shares, we prefer Power China "A" to Energy...

Osbert Tang, CFA

China A-Shares: Industrials Revolution

Over the past 2 years, Industrials exposure has almost doubled among China A-Share active investors. Today's weight of 18.7% and overweight of...

Steven Holden

Dongfang Electric (1072 HK): Pumped Additionally by Pumped Storage Story

Dongfang Electric has interesting angles of being a play on China's hydrogen energy and pumped storage development push. Despite recent rally, the...

Osbert Tang, CFA

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